Tate & Lyle PLC (TATE)

London, the UK-headquartered Tate & Lyle Plc is a food producer and engaged in providing ingredients and solutions to the food, beverage and other industries. As on December 09, 1938, shares of the Tate & Lyle Plc were admitted to the main market of the London Stock Exchange. Threadneedle Asset Management Ltd., Aberdeen Asset Investments Ltd. and SEB Investment Management AB are the major institutional investors in the company (Source: Thomson Reuters).

Recent Development
Tate & Lyle PLC announces that on 1 August 2019 it priced a US$200 million debt private placement. The consideration will be used to refinance the existing indebtedness, thereby extending the Group's debt maturity profile, and for general business activity purposes. The transaction is expected to complete on 19 November 2019, when the following notes will be issued: $100 million 3.31% notes due 2029 and $100 million 3.41% notes due 2031.

Financial Results- FY19

Source: Company filing.

During the financial year under review, the group’s adjusted revenue recorded a growth 2% (constant currency) on a YoY basis, and increased from £2,710m in FY18 to £2,755m in FY19. Driven by 3% growth in Food and Beverages Solution profit, 11% increase in Sucralose profit and contraction in 11% profit in primary products, the company’s adjusted pre-tax profit expanded by 4% (constant currency) to £309m from £296m reported in the year-ago period, however, because of a net exceptional costs of £58m during the FY19, the group’s statutory profit before tax plummeted to £240m from £286m recorded in the year-ago period.Adjusted diluted earnings per share increased by 4% (constant currency) to 52.0p from 49.4p reported in the prior year period and statutory diluted earnings per share plunged by 31% to 38.6p from 56.1p in the FY18, mainly driven by net exceptional item. 

However, the group’s balance sheet risks have been softened as net debt of the company reduced by 13.8% to £337m from £392mreported at the end of FY18.

Also, the group’s full-year dividend for the year under consideration increased by 2.4% to 29.4p/share from the full-year dividend of 28.7p/share recorded for the FY18.

Valuation Methodology
 

Stock Performance
 
Daily Price Chart (as on September 25, 2019), before the market close. (Source: Thomson Reuters)

On a YoY basis, shares of TATE have delivered a price return of 11.27% and up by 10.06% on a YTD basis. While writing (at 01:44 PM GMT), shares of the TATE were quoting at GBX 715.8 and gave up 10.60 points or 1.45% against the previous closing price. In the year-ago period, shares of the TATE have registered a 52w high of GBX 810.00 and a 52w low of GBX 628.20 respectively.

Conclusion
The group’s performance in the FY19 was moderate as revenue growth was substantially below the average industry growth of 5.9% respectively. Also, for the FY20, management is estimating earnings growth in constant currency terms to be largely flat to lower single-digit growth.

However, the group’s performance on an adjusted basis has improved on a YoY basis, as ROCE increased by 90bps to 17.1% from 16.2% reported a year-ago period time, adjusted free cash improved by 8.16% to £212m from £196m reported in FY18.  Also, the group is not highly exposed to the Brexit related risks, so a no-deal exit of Britain would not have any material risk for the group, as contingency plan is already on the management’s table.

Technical measure indicates that its stocks could correct in near-term, as at the current trading level, its shares were quoting below the 200-SMA price, crucial long-term support for any stock. The Price/SMA-200 of TATE stood at 0.98x, a bearish indicator. Also, the group's Price/SMA-200 of 0.98x is lower than the FTSE 350 Price/SMA-200 of 1.01x.
Therefore, considering the current trend in the TATE’s stock and valuation done using the above methodology, we have given a “Watch” recommendation at the closing price of GBX 726.2 (as on September 24, 2019), based on the 7.74 NTM Company’s forecasted EV/EBITDA multiple (approx.) based on the FY20E EBITDA (approx.), while we look for any upcoming catalysts in the H1FY20 Interim results, which is due to report on November 07, 2019.

Boohoo Group PLC (BOO)

AIM-listed Boohoo Group Plc (BOO) is among the top online fashion retail company in the UK. It has a global footprint, including the UK, Europe, Australia and the US being the primary markets. The company products are targeted at the age group of 16-30 years with its brands such as Boohoo, PrettyLittleThings, NastyGal and boohooMAN.

Interim Results – H1 FY20

Source: Company filing.

Led by strong sales growth across the group’s brand and geographies, Boohoo Group Plc recorded stellar top-line growth of 43%. The group’s revenue surged to £564.9m in the H1 FY20 from £395.2m reported in the year-ago period. Adjusted EBITDA margin during the same period stood at 10.8% against 10.0% reported in the year-ago period and adjusted diluted earnings per share surged by 46.2% to 2.91p from 1.99p recorded in the year-ago period and diluted earnings per share surged by 79.1% to 2.48p.    

During the period under consideration, the group's revenue in the UK recorded a growth of 35% and International sales up by 55%, with International revenue stands for 44% of the group's total revenue as compared to 41% contribution it reported in the year-ago period.

Stock Performance
 
Daily Price Chart (as on September 25, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (at 03:36 PM GMT), shares of the BOO were quoting at GBX 265.7 and declined 2.70 points or 1.2% against the previous closing level. In the year-ago period, shares of BOO have registered a 52w high of GBX 288.60 and a 52w low of GBX 146.39 respectively. In the year-ago period, shares of the BOO have delivered a price 40.67%, on a YTD basis, the stock was up by 64.58% and added 22.88% over the past three months respectively.

Conclusion
Boohoo Plc reported stellar growth across the product portfolio and geographies where the group operates. Also, Group's dependency on the UK is diluting as International sales reached to 44% of the total group's revenue, which will help the group to hedge itself against the tumbling Sterling as well. However, UK still is the biggest contributor in the group's total revenue.

The group provided full-year guidance for the FY20, in which it stated that FY20 revenue is estimated to grow between 33% to 38% on a YoY basis, with an adjusted EBITDA margin of the year to remain approximately 10%.

Also, Price/SMA-200 of the BOO stood at 1.26x, a bullish indicator and Boohoo Plc's Price/SMA-200 of 1.26x was substantially higher than the benchmark FTSE AIM 100 Price/SMA-200 of 0.94, which reflects an uptrend in the stock.
Therefore, based on the decent growth guidance and positive technical measures, we have given a “Hold” recommendation at the closing price of GBX 265.8 (as on September 24, 2019).
 
*All forecasted figures have been taken from Thomson Reuters.

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